Interest rate cuts by the Bank of Canada could unleash a wave of renewed interest in top dividend payers as rates offered on Guaranteed Investment Certificates (GICs) decline. Share prices of dividend stocks are already moving higher, but Canadian pensioners can still get great yields from some of the top names on the TSX.
TC Energy
TC Energy (TSX:TRP) operates more than 90,000 km of natural gas transmission pipelines and 650 billion cubic feet of natural gas storage in Canada, the United States, and Mexico. The company also has oil pipelines and power-generation facilities, although the oil infrastructure is being carved off into a separate company to unlock value for shareholders.
TC Energy achieved mechanical completion on its Coastal GasLink pipeline project late last year at an estimated final cost of about $14.5 billion. That’s more than double the initial budget and is part of the reason TRP stock took a big hit in the second half of 2022 and through most of 2023. Soaring interest rates also contributed to the pullback. TC Energy had to take on extra debt to get Coastal GasLink finished.
Management has done a good job of monetizing some assets to reduce the debt load, including more than $5 billion in sales last year. Another $3 billion is expected in 2024. This should provide TC Energy with the financial flexibility to pursue the rest of the growth program.
The stock is up to $58 from the 12-month low of around $45 but is still way off the $74 it reached in 2022. As interest rates decline and the new assets move into commercial operation, TRP should drift higher.
Investors who buy the stock at the current price can get a 6.6% dividend yield. TC Energy has increased the payout for 24 consecutive years.
BCE
BCE (TSX:BCE) also traded for $74 at one point in 2022. Soaring interest rates set off a pullback in the second half of that year. Revenue challenges in the media group and the decision to cut more than 10% of the staff over the past 12 months extended the decline. BCE recently slipped as low as $43, hitting a level not seen for more than a decade. Bargain hunters have emerged in the past couple of weeks, but BCE still only trades for $46 at the time of writing. Investors can now get a dividend yield of 8.6%.
This is arguably a contrarian pick. The trend over the past two years isn’t your friend, and the stock could potentially extend the decline to a new 12-month low if the broader market hits a rough patch heading into the fall.
That being said, BCE is likely oversold at this point, and distribution should be safe. The closure and sale of dozens of radio stations, the reduction of programming across the television platforms, and the reduction of staff will remove significant costs from the business and help BCE meet its financial goals in 2024 and 2025. In addition, falling interest rates will reduce borrowing expenses and should free up more cash for distributions.
The company expects 2024 revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be largely in line with last year despite the headwinds. As long as there isn’t a serious revenue drop in the core mobile and internet services operations, the dividend should be fine. BCE raised the payout by 3.1% for 2024. The average annual increase over the previous 15 years was about 5%.
The bottom line on top stocks for passive income
TC Energy and BCE pay attractive dividends for a self-directed portfolio focused on high-yield passive income. If you have some cash to put to work, these stocks look cheap right now and deserve to be on your radar.
